1 Affordable Care Act: Answers to Frequently Asked Questions The Affordable Care Act imposes major new legal obligations on employers, including new excise taxes, which will increase the cost of supplying temporary and contract workers. The staffing industry is committed to compliance with the ACA, and the American Staffing Association is actively working to help staffing firms and clients understand the rules and how they will affect staffing services. These answers to frequently asked questions are designed to help staffing professionals understand the basic ACA requirements and compliance issues and discuss them with their clients. 1. How will the ACA affect staffing firms? Original Content: American Staffing Association Additional Insight: Advance Group As employers, staffing firms will be subject to new employer shared responsibility ( play or pay ) requirements effective Jan. 1, The requirements apply to all large employers-defined as those with 100 or more full-time and full-time equivalent employees in The great majority of staffing firms will qualify as large employers. Large employers are subject to a non-tax-deductible excise tax in either of two cases if at least one fulltime employee qualifies for subsidized coverage from a public health insurance exchange: Pay Option Employers that do not offer minimum essential coverage to at least 70% of full-time employees and their dependent children under age 26 will be assessed a monthly excise tax of $167 (up to $2,000 annually) multiplied by the number of the employer s full-time employees (excluding the first 80). 2 Play Option Employers that do offer minimum essential coverage as described above will not be subject to excise taxes unless the plan is either unaffordable to the employee or does not provide minimum value. In such case, the employer will be assessed a monthly excise tax of $250 (up to $3,000 annually) for any employee who qualifies for a government subsidy to buy coverage in a public health insurance exchange. If an employer decides to Play and the plan is either unaffordable or does not provide minimum value, the total penalty to the employer for all employees qualifying for a government subsidy can never exceed what they would have paid under the Pay option for offering no coverage at all. 1 Final employer rules issued in February modified the definition of large employer from 50 or more FTEs to 100 or more for For 2015, the final rules also reduced the percentage of full-time employees (and dependents)to whom large employers must offer minimum essential coverage from 95% to 70% and increased the employee exclusion from 30 to 80.
2 Minimum essential coverage: Any employer group health insurance plan that covers medical care, which the law defines as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or amounts paid for the purpose of affecting any structure or function of the body. Unaffordable: An employer s plan will be considered unaffordable unless the employee s share of the premium of a single-only plan does not exceed 9.5% of the employee s wages. Minimum value: The actuarial value of the plan s share of cost of benefits must be at least 60%. Plan benefits must cover at least the following core services: physician and midlevel practitioner, hospital and emergency, pharmacy, and laboratory and imaging. The government has provided an online calculator for determining whether an employer plan meets the minimum value. Most health insurance carriers should be able to tell you whether a plan meets minimum value. If you need to make the determination on your own, the Minimum Value Calculator can be found at cms.gov. 2. Do staffing firms plan to offer health insurance coverage to their temporary employees? Yes. Historically, staffing firms have faced challenges in providing health insurance coverage for temporary employees because of the high turnover and insurance carriers fear of adverse selection. But the law s guaranteed availability rules and the flexible minimum essential coverage requirements mean that staffing firms likely will have ACA-compliant insurance products to offer their temporary employees in ASA surveys show that the great majority of staffing firms intend to offer their full- time temporary employees at least minimum essential coverage but most intend to offer minimum value coverage that is affordable to most, if not all, employees. Some staffing firms may offer plans covering preventive and wellness services that only provide minimum essential coverage. Such plans are relatively inexpensive and are designed to be affordable to temporary employees, but they do not provide minimum actuarial value. Employees needing broader coverage could therefore seek subsidized health insurance coverage through a public exchange which, if granted, would subject the staffing firm to a $250 monthly excise tax for each employee receiving a subsidy. Regardless of the coverage offered, the great majority of staffing firms will incur significant new costs. Their exposure to those costs will vary widely depending on multiple factors, including the type of work their employees perform, their full-time status and tenure, their wage rates, the type of health insurance plan offered to them, and how many participate.
3 3. Are staffing firms subject to tax on all temporary employees? No. The ACA provides that employers are subject to play-or-pay taxes only with respect to their full-time employees. For this purpose, the ACA defines a full time employee as one who works on average 30 or more hours per week with respect to any month. The government recognized that offering health insurance coverage or determining employer tax obligations on a monthly basis would not be feasible for employers with employees who work on a parttime or intermittent basis and whose hours are variable or otherwise uncertain. To address those concerns, the law will allow employers to use a look-back measurement period of up to 12 consecutive months to determine an employee s full-time status for purposes of benefits eligibility. Advance recommends using the maximum of 12 consecutive months for an employer s look-back measurement period. Averaging at least 30 hours per week, an employee would have to work 1,560 hours during the look-back measurement period to be considered full-time. For most temporary staffing firms, this may yield the fewest number of full-time employees who must be offered coverage, thus minimizing the cost of potential penalties. Employers can use the look-back method for both ongoing employees (those who already have worked a full measurement period) and for new variable-hour employees. Variable-hour employees are those whose work patterns, on their start date, are expected to be of limited and uncertain duration. The final employer rules list several factors employers must take into account in determining whether a worker is a new variable hour employee subject to the look-back rules. General factors include, but are not limited to: Whether the employee is replacing an employee who is full-time or variable-hour The extent to which the hours of service of employees in similar positions vary above and below 30 hours, and whether the work hours were communicated to the employee Additional factors apply in determining whether temporary staffing firm employees are variable-hour: Whether other employees of the staffing firm in the same position retain the right to reject assignments; whether they typically have periods during which no assignments are offered; whether they typically are offered assignments for different periods of time, and whether the assignments offered typically do not extend beyond 13 weeks Assuming an employer chooses a 12-month look-back period, an employee who qualifies as ongoing or variable-hour will have to work at least 1,560 hours over 12 months to be considered full-time.
4 Based on the guidance issued to date, we expect that most temporary employees assigned by staffing firms will qualify as variable-hour and therefore will be ineligible to enroll in a staffing firm s health insurance plan unless they work full time during the applicable look-back period. However, employees who at the start are reasonably expected to work full-time for predictable, longer periods of time (e.g., information technology and professional employees) generally will be treated as nonvariable-hour, in which case they will be eligible for benefits at the time of hire. If an employer chooses to Play, these new, nonvariable-hour employees must be covered within 90 days of their start date. In addition to excluding employees who have not achieved full-time status, staffing firms also can exclude for penalty purposes the following individuals, provided the staffing firm offers a plan that provides minimum essential coverage to at least 70% of its full-time employees (and their dependents): Employees who opt out of the staffing firm s plan for reasons other than plan unaffordability or failure to provide minimum value e.g., they are covered by a spouse s or parent s plan Employees who elect to enroll in the employer s plan even though it is unaffordable or does not provide minimum value Employees enrolled in a state Medicaid program 4. Will clients have employer responsibilities for staffing firm employees under the ACA? Generally, no. Employer under the ACA has the same meaning as under the Employee Retirement Income Security Act (Erisa). The U.S. Supreme Court has ruled that whether an entity is an employer under Erisa is determined by the common law multifactor test. 3 Staffing firms generally should be viewed as the common law employer because they recruit, screen, and hire the employees; pay employees wages and benefits; withhold and pay employment taxes; and have the right to terminate or reassign employees. They generally also retain the right to control and direct how the employees perform their work, although the law doesn t require that they actually exercise such control. The few court rulings that have specifically examined the employer status of staffing firms under the common law test have upheld the employer status of staffing firms based on facts and circumstances that are typical of most staffing arrangements. 4 3 Nationwide Ins. v. Darden, 503 U.S. 318 (1992). 4 See, e.g., Burrey v. Pac. Gas & Elec. Co., 1999 U.S. Dist. Lexis (N.D. Cal. May 12, 1999) and Blue Lake Rancheria v. U.S., 653 F. 3d 1112 (Ninth Cir. 2011) upholding the common law employer status of temporary staffing and employee leasing firms.
5 If a client is determined to be the common law employer, the rules provide that an offer of coverage made by the staffing firm on behalf of the client under a plan maintained by the staffing firm may be treated as an offer of coverage made by the client for purposes of the client s ACA obligation. Co-Employment relationships (i.e. PEOs) will not help you avoid liability under the ACA. If a staffing firm is in a PEO relationship, the staffing firm is considered the common law employer and is solely responsible for offering coverage to eligible employees. 5. What if the staffing arrangement causes a client s headcount to fall below 100? There are no bright-line answers to this question, but employer regulations, suggest that the answer will depend on whether the primary purpose of the staffing arrangement is to avoid the ACA employer coverage or tax obligations. Businesses have a right to decide whether and when to outsource portions of their workforce - or how many full-time employees they need based on legitimate business and economic reasons: for example, meeting fluctuating demand for goods and services, staffing special projects, and managing highturnover operations. Therefore, staffing services used by clients for such reasons should generally be ACA- compliant even if the client s headcount is incidentally affected. But if the primary purpose is to avoid the ACA employer coverage or tax obligations, the arrangement may come under scrutiny and the client held to be the responsible employer. 6. Can staffing firms help clients reduce costs by supplying part-time employees? The ACA applies only to full-time employees, defined as those working, on average, at least 30 hours per week. Many businesses rely on part-time employees, and staffing firms can supply them if needed. But clients should be aware that this will not necessarily result in lower staffing costs. Staffing firms strive to maximize their temporary employees work hours by employing them full-time during any given workweek. So even if a client asks a staffing firm to supply an employee for part of a week, the employee generally will work the rest of the week for another staffing firm client; and to the extent the employee is enrolled in the staffing firm s health insurance plan, it necessarily will affect the cost of service. Of course, it could be considered an abuse if an employee s weekly hours are split between a staffing firm and its client, or with another staffing firm, and each firm claims that the employee did not work full time. The government has expressed concern about such a result and future guidance is expected to address such cases. 7. Can temporary employees be terminated or refused reassignment to prevent them from reaching full-time status under the ACA? Terminating or refusing to reassign temporary employees prior to the employee achieving full-time status would likely be viewed as abusive if the primary purpose is to avoid the ACA employer coverage or tax obligations; such action may also violate Erisa if the primary purpose is to deny benefits.
6 8. Is it possible for staffing firms to accurately estimate their ACA compliance costs? Many factors will determine a staffing firm s cost of complying with the ACA. Those costs, which will increase a firm s cost of services, will vary from firm to firm based on individual company business decisions and the nature of the staffing services provided. Many ACA-related costs are still unknown. This is a checklist of some of the factors that will affect a staffing firm s costs that cannot now be reliably estimated. How many staffing firm employees will be qualify as full-time on Jan. 1, 2015, and therefore be eligible for health insurance benefits? Will ACA-compliant health insurance plans for temporary employees be available in 2015? How much will they cost? (ACA insurance reform rules have greatly restricted health insurance underwriting, and staffing firms probably won t know their health insurance plan pricing until well into 2014.) Assuming health insurance plans are available for temporary employees, how many employees will participate in the staffing firm s plan? What will the staffing firm have to contribute to make its health insurance plan affordable to the employee? (This could vary by employee depending upon pay rates.) How many employees will be enrolled in Medicaid (which could reduce staffing firm costs)? How many staffing firm employees will be eligible for ACA subsidies (which could subject the staffing firm to penalties)? According to the latest Staffing Industry Analysts Buyer Survey, buyers expect to pay $1.00 per temp hour for ACA compliance while suppliers believe that bill rate would have to be closer to $1.50 per temp hour. However, buyers are beginning to come around as 62 percent of buyers polled in 2013 said they expect to bear zero of the cost of ACA compliance to suppliers of labor. In 2014, that number has shrunk to 34 percent. Staffing firms should discuss these issues with their clients. They should also be discussing their 2015 health insurance options with qualified insurance brokers, agents, and consultants. ASA corporate partners and other suppliers can help with those issues. Of course, staffing firms should always discuss with their own legal counsel any issues relating to how the ACA specifically applies to their business by the American Staffing Association Inc. and Advance Payroll Funding, Ltd. (where noted). All rights reserved. No part of this document may be reproduced without permission.